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24 March 2015

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

Background: Omnicare is the nation's largest provider of pharmaceutical care services for the elderly and other residents of long-term care facilities in the United States and Canada. A group of investors filed a lawsuit against Omnicare alleging, among other things, that Omnicare made material misstatements and/or omissions in a Registration Statement filed with the Securities and Exchanges Commission in connection with a public stock offering, in violation of § 11 of the Securities Act of 1933. The district court found that the plaintiffs had failed to meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b). Furthermore, district court found that the plaintiffs had not sufficiently pleaded the defendants' knowledge of falsity. As a result, the claim was dismissed. The Sixth Circuit reversed, holding that § 11 provides for strict liability, and as a result, the defendants' knowledge is not relevant to the claim. Therefore, the plaintiffs should not have been required to plead knowledge in connection with the claim. It is sufficient enough that the plaintiffs plead that the defendants' statement is objectively false.

Issue: The question before the Court was whether, for purposes of a claim under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, a plaintiff may plead that a statement of opinion was “untrue” merely by alleging that the opinion itself was objectively wrong, as the Sixth Circuit has concluded, or must the plaintiff also allege that the statement was subjectively false – requiring allegations that the speaker’s actual opinion was different from the one expressed – as the Second, Third, and Ninth Circuits have held.

Holding: In a 9-0 decision, the Supreme Court ruled that a statement of opinion does not constitute an “untrue statement of...fact” simply because the stated opinion ultimately proves incorrect. Because a statement of opinion admits the possibility of error, such a statement remains true—and thus is not an “untrue statement of...fact”—even if the opinion turns out to have been wrong. Nevertheless, opinion statements are not wholly immune from liability. A statement of opinion thus qualifies as an “untrue statement of...fact” if that fact is untrue—i.e., if the opinion expressed was not sincerely held. If a registration statement omits material facts about the issuer’s inquiry into, or knowledge concerning, a statement of opinion, and if those facts conflict with what a reasonable investor, reading the statement fairly and in context, would take from the statement itself, then §11’s omissions clause creates liability. For purposes of §11’s omissions clause, whether a statement is “misleading” is an objective inquiry that depends on a reasonable investor’s perspective.